Category: Investment Philosophy

The Invisible Path

Jackson Zhu1 Comment

I observe myself and my investment activities and outcomes. I also observe other active investors and their investment activities and outcomes (this was actually my full-time job before). Something I noticed perplexes me: Despite almost all active investment managers being highly educated, well trained, and extraordinarily hardworking, almost all of them (at least in the U.S.) end up underperforming stock indexes.

For example, for the past 20 years, over 97% of “Large-Cap Growth Funds” in the U.S. underperformed the S&P 500 Growth Index; and the longer the measurement time window, the higher the percentage of underperformance (source: link). According to another source, losing funds’ underperformance is about 2x the size of winning funds’ outperformance (source: Figuring It Out, Ellis). To put it differently: Most investors end up underperforming, and when they underperform, they underperform by a wide margin. Clearly, investors’ hard work has largely failed to translate into good results. Why?

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Defense, Defense, Defense

Jackson Zhu1 Comment

In an environment where almost no active investment managers can outperform U.S. stock indexes, “risk management” as a serious subject has morphed into something different. Being able to tell a risk management story well does not mean being able to invest well. Unfortunately, for managers who cannot outperform stock indexes (almost all managers!), shifting investors’ focus away from investment performance and focusing instead on telling a risk management story has become business critical — managers need something to say in investor meetings. However, sensible investors should understand that excellent investment performance naturally lends itself to excellent risk management, but telling an excellent risk management story means almost nothing as to an investor’s ability to invest.

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A Few Stocks.  A Few Days.  What Is Going On?

Jackson Zhu3 Comments

The U.S. stock market, as represented by key indexes, has produced solid returns for investors over the long run.  This fact has led many investors to conclude that 1) most stocks go up in the long run, and 2) buy-and-hold is a sure-fire strategy. 

I would like to argue that, while the initial observation of strong index performance is correct, those secondary conclusions are misleading and have serious implications for successful investing.

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Rousseau and Insights For Modern Investors

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In recent weeks, I had the chance to study the philosophy of Jean-Jacques Rousseau through a course offered by the Yale Alumni College (YACOL), an Yale alumni-run organization with which I am actively involved.

As I studied Rousseau’s ideas, I began to recognize connections between his perspectives and my own thoughts on investing, ultimately inspiring me to share these insights in this post.

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Do Not Put Out The Fire

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Many people were given answers before they had questions. By the time they have questions, it is too late!

We study history, not for the purpose of bringing back the past but building a brighter future. Growth mentality, not siege mentality.

Do not follow the herd. Seek tranquility, so you may gain transcendence. Quality has something to it that quantity does not. Find your groove.

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My Learnings (2017 to 2021)

Jackson Zhu1 Comment

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It is a difficult decision for me, but I have determined that now is the time to leave my current position and to pursue a similar but not so similar path, something that is more true to my heart.

Reflecting upon the past four years, I distilled my key learnings into the following.

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What Doesn’t Work in Investing

Jackson ZhuLeave a comment

I predicted negative oil prices in April 2020 — and from the data I have seen I was one of only a handful of investors to do so. Some people reached out to me and asked whether I am a dedicated short seller or a specialist in commodities or futures trading. My answer is NO!

I did not make that negative-oil prediction because I wanted to short something, nor because I wanted to do something global macro. I made that prediction because I study fundamentals. I think in “first principles,” which leads me to focus on the fundamental truth of a thing — and in this case, the supply and demand of crude oil, a study which eventually led me to conclude there would be a severe surplus of oil supply and the world would run out of storage space for crude oil, thus we would see negative oil prices.

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